A Shareholders Agreement: The Will for Your Business

Most people would not leave their personal affairs without a Will. Equally, business owners should not leave the future of their business to chance.

A Shareholders Agreement (or a Unitholders Agreement where a business is operated through a unit trust) is, in many respects, a Will for your business. It provides a clear roadmap for dealing with future events, including disputes between owners, retirement, death, disability, business succession and the transfer of ownership interests.

Like a Will, a well-drafted agreement provides certainty, minimises conflict and protects what has been built when circumstances change unexpectedly.

Planning for the Unexpected

When a business is established, everyone is focused on growth and success. Few people want to contemplate disputes, illness, death, disability or a business partner wanting to leave.

However, these situations do arise. Without a properly drafted agreement, owners may find themselves relying on legislation, company constitutions or trust deeds that were never intended to deal with their particular circumstances. This can create uncertainty and disputes that may ultimately result in costly, time-consuming and emotionally exhausting litigation.

A well-drafted Shareholders or Unitholders Agreement provides a roadmap for resolving issues before they escalate, helping owners avoid the financial and personal toll that litigation can bring.

Why Is It Important?

A well-drafted agreement commonly deals with:

• decision-making and management of the business;
• funding obligations and profit distributions;
• restrictions on transferring shares or units;
• succession planning;
• dispute resolution; and
• what happens if an owner retires, exits, becomes incapacitated or dies.

Importantly, it creates certainty at a time when emotions and commercial pressures can make decision-making difficult.

Is It Too Late?

Many business owners assume that if they did not put an agreement in place when the business started, they have missed their opportunity.

That is not the case.

Whether a business is newly established or has been operating for many years, it is never too late to put appropriate protections in place.

A Timely EOFY Review

As the end of the financial year approaches, many business owners focus on tax planning, cash flow and financial performance. EOFY is also the ideal time to consider whether your business has the right protections in place for the future.

At Penmans, we encourage all business owners to consider implementing a Shareholders or Unitholders Agreement. We provide a comprehensive questionnaire designed to identify the key issues relevant to your business before the agreement is drafted.

Unless unusually complex, we offer this service for a fixed fee of $3,300 (including GST).

If you have taken the time to protect your personal affairs with a Will, perhaps this end of financial year is the perfect time to consider whether you have taken the same steps to protect your business.

To get started, contact our Commercial and Business team. We will provide you with our comprehensive questionnaire, which you can complete at a time that suits you, allowing us to begin preparing a Shareholders or Unitholders Agreement tailored to your business and its future needs.